CXOFiles No.4 Joe A. Paul and Paul N. Cote: The Pair Behind Cypress Partners, LLC

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The story of the 14-center imaging chain called Cypress Partners, LLC, [link to:] is a tale of two partners who honed their skills as hired guns at corporate entities operating in the diagnostic imaging space before becoming masters of their realm with their own imaging center company. Joe A. Paul, CPA, was president and CEO of US Diagnostic, Inc. Paul N. Cote spent eight years as a regional manager for DVI Financial Services, reviewing business plans for many startups in the outpatient imaging field. When they co-founded Cypress Partners, LLC, neither man wanted to move, ergo two home offices in Jupiter, Fla, and Atlanta, Ga. caught up with Paul, president and founder, and Cote, founding partner, by telephone to discuss their strategy and unique management style. As a medium-size imaging center company scattered geographically, has the job of keeping Cypress Partners operating as a profitable business become more complex?

COTE: Our centers are primarily in Alabama and Georgia and we have two PET centers in Maryland just out of Rockville, so we have 14 centers total. There is no doubt that the job of operating imaging centers in a profitable mode has become more difficult for everyone in the industry. As we all face similar challenges with the cuts in reimbursement and the radiology benefits management companies, which have controlled utilization through the pre-certification process. That job has become much more difficult for us. Joe and I have been able to rely on his experience as a former president of a large imaging center chain and my experience in the financing field of radiology equipment to manage through those challenges. We’ve cut our expenses down to as little as possible and work on driving revenues as best we can through the facilities.

PAUL: The DRA cuts obviously impact all federal patients, but many of the payors have elected not to follow Medicare’s lead on that. On the other hand, there are a number of contracts that most imaging center operators have that are based on the Medicare fee schedule, and so DRA has had an impact. Fortunately for our company, given the markets we are in, we do not have a hugely Medicare-reliant population base, but it still is somewhat significant. Between that and some of the pre-certification processes that a number of carriers have started to implement again, in some ways it feels like we’re going back 10 years, but those are all very large challenges not only for our company but the industry. Is this a good time to grow? What are your goals with respect to growth?
PAUL: From our standpoint, I don’t think the growth opportunities are much different today than when we went into business almost seven years ago. What we see out there for sale most of the time are distress centers. Very rarely do you see very profitable, thriving imaging centers put up for sale. Usually, what you see is a company that has gone through some financing troubles or small one-off or two-off imaging centers, whether physician-owned or corporate-owned, that are at a point where, in order to stay competitive in the market, they’ve got to replace or upgrade their equipment. That is what we primarily see for sale out there: someone who has run a center for a number of years and is looking to upgrade their equipment and doesn’t want to take the risk. Or, somebody who got into the business a couple of years ago thinking this was a pretty easy business, got into trouble, and the lender took the equipment back. A lot of times, we will work with our lenders if there is a situation where they need management help or somebody to come in and take over the center.

We look primarily at opportunities that are in our market or adjacent to our market or unique, such as the only imaging center outside of the hospital in a particular market. But we are looking for something unique, either a one-off that has competitive advantages or additional markets to where we are already.

COTE: Where it made strategic sense, we have taken a look at some of the opportunities that are adjacent to some of the markets we are in, but a lot of times it is somebody who used bad judgment in opening the center to begin with, and we’re just not into taking on somebody else’s problem. In your efforts to acquire new centers, what are you looking for and what are you seeing out there for sale?
PAUL: I’ve got two books on my